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When we pay the cost of anything, we either receive product or service. Some product's benefit will be day or two day. But some products benefits will be 10 to 20 years. So, all the cost of product or services whose total benefit will have obtained, will be expired cost. We will show it as our business expense.

For example, we have taken the service of electricity and pay the bill of electricity of \$ 1000. It is our expired cost. We will show electricity expense in our account as \$ 1000. But if we still did not receive the electricity service benefit but paid the electricity bill. Its cost will not say as expired cost because we have to take benefit. So, we will show prepaid electricity expense in our accounts. For example, we will receive next month same service. So, at the end of the next month, our same cost will be expired.

When we buy any fixed asset. Its cost will not say expired cost. Because, we have to take the benefit from same fixed asset. But after spending time, its value will expire with depreciation. So, depreciation expense will be our expired cost. It may be 10% or 15% which will be based on the nature of fixed asset.

How to Account Expired Cost of Inventory

Instructions

1. In case of showing expired cost of inventory, we will have to count inventory physically. All the expired inventory quantity will be shown for dead inventory.

2. Now, from historical record, we check the price of same inventory. We will multiply the quantity with its price. It will be expired cost of inventory.

3. We will record it by

Loss of expired inventory account Debit

Inventory or purchase account Credit

Conduct a physical count and review of inventory. Look for all spoiled goods in the business. Write down the type and quantity of expired inventory items.

Compare the expired inventory to the cost for each item. Multiply the quantity of expired goods by the individual cost.

Prepare a journal entry to post the expired goods. Debit loss on spoiled inventory and credit inventory. This removes the spoiled goods from the active inventory account.

Remember : It is just for knowledge of accountant. Accountant should know which are expired cost and which are not expired cost.

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Accounting Education: Expired Costs
Expired Costs
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Accounting Education
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